Still Plenty Of Liquidity, Says CDL’s Kwek

Source : The Business Times, 15 Aug 2007

But foreign funds seeking investment property are likely to proceed more carefully

‘There is still plenty of liquidity around,’ City Developments’ executive chairman Kwek Leng Beng said yesterday. But foreign funds seeking investment property are likely to proceed more carefully given the escalation of the US sub-prime woes, he noted.

Mr Kwek was speaking at a press conference to announce CDL’s 2007 second-quarter results, which saw revenue rising 28.8 per cent year-on-year to $775.2 million and net profit up more than four-fold from $44.9 million to $194.4 million.

On a half-year basis, revenue soared 35.1 per cent to $1.54 billion, an all-time high for the property developer. Six-month net profit jumped 272.3 per cent to $320.5 million.

Unlike most property companies, CDL did not factor investment property revaluation gains.

Speaking for the first time on the impact of the US sub-prime crisis and the ensuing credit squeeze, Mr Kwek said that he has seen fewer funds making enquiries about CDL’s burgeoning investment property portfolio. ‘Before, they would come knocking everyday,’ he said.

This interest in office buildings has been boosted by rising rental returns and CDL revealed yesterday that its Republic Plaza had recently achieved a new record rent of $17.50 psf per month and is now asking for over $18 psf per month.

Related links: Click here for City Developments’ half-year financial report Financial statement Other corporate results reported on Aug 14 Consolidated corporate resultstable

For H1 2007, profit before tax for the rental properties segment, which includes office space, was $27 million, a year-on-year increase of 800 per cent.

Mr Kwek also said that CDL was considering but not in a hurry to sell its office buildings, or for that matter, launch an office real estate investment trust (Reit) of its own.

For the same period, profit before tax for its property development segment was $238 million, a rise of 266 per cent.

Interestingly, CDL is not rushing to sell off Cliveden at Grange either, its latest luxury condominium offering.

Saying that prices for luxury condos are not likely to keep increasing on the same steep curve it has been charting for the last 12 months, Mr Kwek revealed that he was considering retaining two blocks of Cliveden for rental purposes and long-term investments.

He added: ‘(Luxury prices) won’t be going up in a straight line anymore until things stabilise.’

The luxury end of the market has been largely driven by foreigners. Mr Kwek said that he had spoken to some of his foreign high net worth clients and they have told him the sub-prime crisis is not a ‘big issue’ for them. ‘They feel it will affect the private equity firms more,’ he said. However, he added: ‘It is fair to say some will be cautious and may defer their decision to buy now.’

Mr Kwek was much more bullish on the mid-tier residential segment in which he still sees upside. ‘It has not reached the previous peak yet,’ he said.

CDL is planning to launch four developments in the second half of the year including the 40-unit Wilkie Studio in the Mount Sophia area; a 77-unit project at Shelford Road; the 228-unit Quayside Collection at Sentosa Cove; and a 336-unit project at Thomson Road.

CDL also spent about $1 billion in the first half of the year increasing its landbank, and is consequently raising its gearing ratio to 56 per cent, up from 54 per cent in 2006.

Its residential landbank is now at about 3.5 million sq ft while its total landbank is close to 4.5 million sq ft.

Of the potential gross floor area of 8.9 million sq ft, about 80 per cent can be for residential development.

The positive outlook, boosted by earnings, has prompted CDL to declare a special interim dividend of 10 cents per ordinary share. The payment date will be released at a later date.

CDL closed yesterday at $14.60 per share, down 10 cents.